Assignment 2 Completed

8/4/2019 Assignment 2 Completed

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The Black Dog Public House

Question 1

Valuation of Accounts and Market

By

Adam Smith

0901686



The Black Dog Public House

Introduction

The purpose of the report is to evaluate The Black Dog Public House and provide comment

to the owner on the use of the public house’s accounts and how this determines the

property’s value through the type of valuation method used.

Objective

The objective in preparing the report is to define the valuation of the public house which

will be based on the use of the profit methods of valuation, whilst justifying the chosen

format of valuation. The valuation will be completed in conjunction with comment in

relation with the associated market.

Methodology

The report will be structured to provide a breakdown of the individual components of the

profit method of valuation, as considered in relation to the supporting case study. The

purpose of the valuation and the principles of the components will determine the value of

the public house, as well as the given assessment of the Public House’s market place.

The valuation of the portfolio will be considered in accordance with RICS Red Book, the

valuation of specialist properties and appraisal and Valuation standards.

Valuation

‘Certain specialist types of properties are not capable of valuation according to comparative

principles, owing to their unique situation and characteristics’ CEM (2010)

The current market for the sale of public houses is dictated by the type and location of the

premises available. The public house market, according to RICS is split into 6 categories or

types 1) Town Centre: Bar 2) Town Centre: Traditional Pub (either food or wet led); 3) Urban

4) Suburban 5) Rural and 6) Food Led.

Therefore as the valuer, the opinion of the market is based on the businesses current

receipts in relation to wet and dry sales as created within its market. Its market is also

defined by the purchaser (the public house company) and its intended future use. This will

be influenced by the businesses location and subsequent (number and type) competition.



With this being the case with the Black Dog Public House, there is an assumption that the

value of the property is related to its revenue stream or profits created out of its beneficial

use. The value of the premises is derived on the assumption that any rental income from the

property is related to the businesses earning power.

‘Public houses, bars, restaurants and nightclubs are among those types of property generally

referred to as trade related property. They are normally bought and sold having regard to

their trading potential’ Red Book 6th

Edition

The Profits Method is ‘generally used where there is some degree of monopoly attached to

the property’ Millington (2009) A monopoly can be as such legally or factually, this is the

case, where a license is required to operate.

When valuing using The Profit Method an assumption that ‘the property is vacant and to be

let; CEM (2010) is made. The actual accounts provide a basis for the assessment of sales

income and the operating expenses. The surplus can then be considered and out of it, the

tenant will require’ CEM (2010) a return on capital invested and remuneration or yield for

invested risk.

It should be considered that the actual accounts may not always offer a true flection of the

businesses, or premises earning potential, all they record is the actual income and

Year 1 Year 2 Year 3 Average

Income

Receipts Wine, beer and spirits £508,000 £518,000 £535,000 £520,333

Food sales £88,000 £101,000 £128,000 £105,667

Other £12,000 £13,000 £15,000 £13,333

Hire of function rooms £2,500 £2,600 £2,750 £2,617

Sub-total (Income) £610,500 £634,600 £680,750 £641,950

Purchases Food and Drink sales (2) £298,000 £309,500 £331,500 £325,000

Expenditure

Outgoings Wages (1) £46,000 £48,000 £50,000 £48,000

Cost of sales £200,000 £215,000 £221,000 £212,000

Repairs and insurance £10,000 £12,000 £10,000 £10,667

Utilities £7,000 £8,000 £8,200 £7,733

Office expenses £800 £850 £850 £833

Advertising £1,000 £1,000 £1,000 £1,000

Laundry £400 £450 £450 £433

Furnishings £5,000 £1,000 £1,000 £2,333

Rates £15,000 £15,400 £15,800 £15,400

Sub-total (Expenditure) £285,200 £301,700 £308,300 £298,400

Notes

1. Average for 3 years but trends will be considered during Adjusted Accounts

2. At 50% of sales of Food and Drink



expenditure, black and white, the figures but not the facts. They do not consider, how other

external factors, such as human input affect the business performance.

The concept of the method is to evaluate and adjust the accounts based on what would be

considered reasonable through the evaluation of Fair Maintainable Trade. This requires

consideration in terms of evaluating the type of pub or licensed premises that is being

examined, the area it is in and what level of services it is able to offer.

‘The essential characteristics of properties that are normally sold on the basis of their

trading potential is that they are designed, or adapted, for specific use and that ownership

of the property normally passes with the sale of the business as an operational entity’ Red

Adjusted accounts for valuation

Income

Wine, beer and spirits (3) £525,000

Food sales £110,000

Other £13,333

Hire of function room (2) £2,650

Total gross earnings £650,983

Less Purchases (Cost of Sales) £212,000

Gross Profit £438,983

Expenditure

Wages (1) £51,000

Repairs & insurance £10,500

Utilities £8,610

Office Expenses £850

Advertising £1,000

Laundry £450

Furnishings £2,000

Business rates (4) £16,200

Total Expenses £90,610

Expected Future Net profit £348,373

Interest on Operators Capital@ 5.5% of £350,000 £19,250

Divisible balance £329,123

Half to rent £165,000

Notes

1. Wages adjusted upwards to mimick trends set

2. Adjusted downwards from average to indicate corporate slow down

3. Average taken to display current economic trend and impact.

4. Increased on average to display yearly i ncrease



Book 6th

Edition. Entity is defined as including any legal interest within the land, the trades,

fixtures, fittings and equipment.

The capital value of such is evaluated using two approaches; the single earnings multiplier

and the dual capitalisation approach.

The single earnings multiplier is formed on the concept that the value of the land and

buildings is directly linked with the businesses profits; therefore the relationship between

net profit and sales value of the property is evaluated and the entity approach is inclusive,’

not only of the land and the buildings and profits, but also of the tenants fixtures and fittings

And the Dual Capitalisation approach considers the value of the land and buildings along

with the sum of the business, as evaluated from a ‘reasonable’ perspective, which runs with

the land, A ‘bricks and mortar’ valuation business venture aside.

Discussion

As concluded by RICS, public houses are not held within a homogenous market, meaning no

two entities within the market are the same, which makes comparison very difficult.

Capital Value - Single earnings multiplier

Net profit £348,373

Value as an operational entity @ YP (1) 5

£1,741,865

Notes

1. Derived YP to give a return on investment of 20% - This includes rental value and Operators profit

it is also to include the fixtures and fittings

Capital Value – Dual Capitalisation approach

Rental value £165,000

YP perp @ 12% (1) 8.333

Value of rental slice £1,374,945

Operational profit £164,123

YP 3

Value of residual profit slice £492,369

Tenants fixtures, furniture etc (2) £25,000

£1,892,314

Notes

1. High YP Perp of 12% used to highlight the competition in the Market Place, normal pub YP Perp suggested by Isurv at 9/10%

2. £25,000 used based on the age of the fittures and fi ttings, with some being replaced 3 years ago

3. Good Will Valuation not used as valuation is in relation to a leisure property as stated in GN1



The essence of understanding the market and the key to valuing a public house is

determined by understanding the purchaser’s requirements, the property type and location

in tandem with an evaluation of the business accounts.

‘The basic truth is that rent can only be paid if the tenants can sell enough beer to cover rent

and make a living’ CBR Ellis (2011), showing a direct correlation with the property’s value

and the success of the business.

The market which the Black Dog occupies, Horsham, competition appears to expanding,

there is considerable competition from major national food retailers, such as Ask,

Wagamammas and Strada within the Town Centre, making any new venture or business

take on considerable risk.

How-ever much demand is derived from the ever expanding local micro-brewery market,

with the emergence of Dark Star, Taylor Woodhouse and King & Co looking for publichouses to show-case their ales.

Horsham being a traditional market town has always strived on local breweries to

supporting the pub market, with as many as 12 public houses, independent and brewery

linked with in or around the town centre. The success is based on the required consistence

of good ale with, good local pub food or themed (Chinese, Thai or Indian) foods being

served, as well as goodwill and reputation

The market within Horsham is forever growing with the expansion of the population and

new homes. There are currently no empty or vacant retail or leisure unit, which suggests

that the market is resistant to the current economic market and trends. This is further

solidified with the emergence of further eateries and licenced establishments on almost a

monthly basis. This however increases the competition of The Black Dog hence the display

and use of a high yield.

Conclusion

With the valuations completed, it is of the opinion that the value of the pub based on the

market and accounts of The Black Dog, would be say circa £1,850,000.

‘There are still real opportunities within the sector, but times are changing’ CBR Ellis (2010)

Word Count 1026



Question 2

‘The purpose of any valuation is to determine the present value of a future cash flow. The

value of an investment is the discount value of all estimated future liabilities and benefits’

French and Gabreilli (2010)

The method of discounted cash flow as a valuation technique is used to estimate the

viability of an investment opportunity by using future cash flow projections and discounts to

formulate a net present or market value. Discounted cash flow is used to evaluate the

potential or internal rate of return of an investment. Discount cash flow valuation is a

valuation method where future cash flows are discounted to produce a present value.

‘When used to estimate Market Value, all the variables used in the calculation must be

based on market evidence (…)DCF is an opinion of market value which is based on growth

expectations and a discount rate, all supported by market evidence. If any are based on a

client's projections then the calculation will be an assessment of value (worth) to that client

on those assumptions.’ Isurv (2011)

The benefit of using the discount valuation method is to provide a basis for a transparent

alternative to perpetuity and capitalisation through the use of an all risks yield. Discounted

cash flow takes into account projected rents and depreciation over a given period of time

without the need of the overall adaptation of various external factors through the use an all

risk yield and market comparables. Discounted cash flow is used for an evaluation of the

‘hidden assumptions implied in the all-risk yield method’ French and Gaberilli (2010)

For an investment, such as the Riverside Retail Park, discounted cash flow allows for specific

market growth rates to be reflected and displayed to mirror market assumptions. It also

allows a valuer to consider current and future economic and market circumstances.

Another benefit is that specific tranches of income and expenditure can be broken down in

to individual time periods to reflect varying income periods or lease terms as with the

valuations of the DCF’s for Riverside Retail Park. It allows for various forms of income to be

evaluated as one investment. Unlike other traditional methods of valuations; discounted

cash flow will enable and the valuer to be able to be able to display the expected net cash



flow for each period as well as the total net present value of a total investment, whether it

is positive or negative as has been done with The Riverside Retail Park.

The use of a discounted cash flow table will enable the valuer to take into account

expenditure against income, whilst formulating the investments internal rate of return. The

discounted cash flow method allows for a reflection of a future income and or re-sale value

which can reasonably be expected, whereas the other traditional methods evaluate and

compare with what has been paid in the past. However each valuation method is only as

good the market assumptions made and the market data itself.

The advantage of using the discounted cash flow method is that it allows the valuer to

consider, reflect and manipulate the individual inputs and factors which affect the valuation,

whether it be growth as in The Riverside Retail Park, expenditure etc. This allows for reflect

on price, value or worth, in accordance with market conditions, valuation requirements and

professional knowledge.

‘The more accurate the future expectations, the more robust the valuation.’ French and

Gaberilli (2010)

Word Count 511



1. DCF Valuation based on Case Study 5 –Riverside Retail Park (Positive Growth)

Unit 1

Period Years ^Income Growth @ Income Total PV of £ @ YP @ NPV

3.9% with growth income 12% 12%

Years 3-5 2 £250,000 n/a n/a £250,000 1.000 1.6901 £422,525

Years 6 - 10 5 £250,000 1.080 £269,880 £269,880 0.797 3.8713 £832,899

Exit at 10 years £269,880 n/a n/a £269,880 0.452 11.4286 £3,084,353

TOTAL NPV £4,339,778

Unit 2/3



Years 2-5 3 £250,000 n/a n/a £250,000 1.0000 2.579 £644,854

Years 6 - 10 5 £250,000 1.122 £280,406 £280,406 0.7118 3.871 £772,663

Years 11-15 5 £280,406 1.358 £380,813 £380,813 0.4039 3.871 £595,422

Exit £380,813 n/a n/a £380,813 0.2292 11.4286 £997,402.43


Unit 4



Years 6 - 10 4 £100,000 n/a n/a £100,000 1.000 3.2619 £326,192

Years 11-15 5 £100,000 1.165 £116,537 £116,537 0.636 3.8713 £286,713

Exit £116,537 n/a n/a £116,537 0.361 11.4286 £1,331,850

TOTAL NPV £1,944,755Unit 5



Years 3-5 2 £291,500 n/a n/a £291,500 1.0000 1.815 £529,075

Years 6 - 10 5 £291,500 1.080 £314,680 £314,680 0.7972 3.871 £971,161

Years 11-15 5 £314,680 1.307 £411,318 £411,318 0.4523 3.871 £720,293

Exit £411,318 n/a n/a £411,318 0.2567 11.4286 £1,206,576


Riverside Retail Park Overall NPV £12,721,980

Notes1. Growth Rate of 3.9% used based on the case study evidence from Tollgate.

This means that there upwards increase in the £ per square ft value of the units

2. It is assumed that each lease will be sold at the end of each of their individual terms

3. YP and PV used at 12% based on the investors required rate of return

4. Exit Yield of 8.75% in comparison to the equivalent yield based on the sale of Tollgate Retail Park

The increase by 1% has been evaluated to consider the condition of Riverside Retail Park, being constructed in 1980



2. DCF Valuation – Current Market Conditions (Negative Growth)

Unit 1


-1.5% with growth income 12% 12%

Years 3-5 2 £250,000 n/a n/a £250,000 1.000 1.6901 £422,525

Years 6 - 10 5 £250,000 0.970 £242,556 £242,556 0.797 3.8713 £748,572

Exit at 10 years £242,556 n/a n/a £242,556 0.452 11.4286 £2,772,078


Unit 2/3



Years 2-5 3 £250,000 n/a n/a £250,000 1.0000 2.579 £644,854Years 6 - 10 5 £250,000 0.956 £238,918 £238,918 0.7118 3.871 £658,343

Years 11-15 5 £238,918 0.886 £211,709 £211,709 0.4039 3.871 £331,018

Exit £211,709 n/a n/a £211,709 0.2292 11.4286 £554,494.77


Unit 4



Years 6 - 10 4 £100,000 n/a n/a £100,000 1.000 3.2619 £326,192

Years 11-15 5 £100,000 0.941 £94,134 £94,134 0.636 3.8713 £231,596

Exit £94,134 n/a n/a £94,134 0.361 11.4286 £1,075,816


Unit 5



Years 3-5 2 £291,500 n/a n/a £291,500 1.0000 1.815 £529,075

Years 6 - 10 5 £291,500 0.970 £282,821 £282,821 0.7972 3.871 £872,836

Years 11-15 5 £282,821 0.900 £254,428 £254,428 0.4523 3.871 £445,550

Exit £254,428 n/a n/a £254,428 0.2567 11.4286 £746,349


Riverside Retail Park Overall NPV£10,359,300

Notes

1. Growth Rate adjusted to have a negative impact.

This is to reflect current market conditions and trends as reflected by CBR Ellis and GVA Grimley Reports for predictions in 2011

2. It is assessed that currently the retail market is on a downward trend and despite the case studystating upward only rent reviews

this does not reflect true market conditions. Rental incomes have actually decrease by up to 8.2% over the last two years



3. DCF Valuation – 5 years future expected Growth (Almost Zero Growth)



Your Ref: 602CMR

Our Ref: 0901686

Alliance and Leicester,Santander UK plc,

Carlton Park,

Narborough,

Leicester,

LE19 0AL

18th

of September 2011

Dear Sirs,

Valuation of 602 Commercial Road, Limehouse, London, E14 as of the 14th

September

2011

Basic of Instruction

In accordance with our terms of engagement issued on the 21st

of August 2011 and in

relation to compliance with V.1.4, all matters have been fully brought to the client’s

attention prior to the completion of the report. Our terms of engagement have been

executed to the minimum requirements as External Valuers as defined by V.2.1

We have been instructed by Alliance and Leicester, Santander UK plc, Carlton Park,

Narborough, Leicester, LE19 0AL to value and prepare a valuation report in relation and

respect of the Long Leasehold interest, as detailed below. The valuation is required for

secured commercial lending purposes and will be dealt in reference with Appendix 5.



The valuation of the Long Leasehold was on the following; As intended as being owner

occupied: valued to Market Value which will held predominantly for owner occupational

purposes and is intended for occupation by a third party under the proposed long leasehold.

The lease has not been sited and the strength of its covenants undetermined, it is

recommended that the lease is obtained for reading.

The property will be and is vacant at the date of valuation

This valuation has been prepared in accordance with the RICS Valuation UK and Global

Standards, 7th

Edition, issued by The Royal Institution of Chartered Surveyors as of May

2011. As instructed, the valuation has been provided on the basis of Market Value, with any

special assumptions set out and highlighted within the report in accordance with V.2.2

The valuer’s opinion of Market Value was primarily derived using comparable recent market

transactions on arm’s-length terms, with evidence of the proposed lease.

Market Value is defined internationally as

‘the estimated amount for which a property should exchange on the date of the valuation

between a willing buyer and a willing seller in an arms-length transaction after proper

marketing, wherein the parties have acted knowledgably, prudently and without

compulsion’

We can confirm that the independent valuer meets the requirements of the RICS Valuation

Standards V.1.5 to V1.7 and holds sufficient current knowledge of the particular market

under inspection whilst obtaining the necessary skills and understanding to undertake the

valuation with competency. It is also confirmed that there has been no previous material

involvement that may affect the valuation.

Inspection

The property was inspected by the valuer on 14th

of September 2011. An Internal and

External visual inspection of the property was undertaken, although it should be noted that

the residential accommodation above was not inspected and does not form part of this

valuation.



A full structural survey has not be completed but comment is drawn to the indication that

the premises is due from completion in the Autumn of this year (2011) and on completion

will be issued with an NHBC 10 year building guarantee. No disrepair is noted.

It is necessary as a recommendation that all local searches and flood risk assessments are

performed due to the location of the premise and its proximity to the canal. These

assessments were not performed as per our terms of engagement.

Plan

Enclosed with this report as an appendix is site plan of the property, accompanied by an

obtained conveyance plan and Ordnance Survey Map to the scale of 1:100m.

Location

This new A3/B1/D1/D2 accommodation (It should be noted that the mode of commercial

use of the development has not been reified) is located on the North of The River Thames

on Commercial Road (A13) Limehouse, within the London Borough of Tower Hamlets. The

unit is accessed directly off Commercial Road with secondary access from canal side; the

commercial unit is completely separate to the residential units. Forming part of this new

mixed used development it is situated directly adjacent to and overlooking Regents Canal

and Limehouse Dock.

The subject property is highly accessible to Limehouse DLR Station being approximately 200

meters away and subject to a regular service to Bank (8 Minutes) and Canary Wharf (8

Minutes)

Description

The subject property comprises approximately 5,306 sq. ft. (493m2) GIA of which 667sq ft is

located at street level with the surplus 4,639 sq. ft. at canal or basement level and is

occupational as a complete unit only.

The building is modern and is of brick and block construction, with a re-enforced steel

frame. Natural light is provided by floor to ceiling powder coated aluminium framed glazing

to both the canal and street levels, additional security grating louvres are provided. There is



additional external light to Commercial Road and the Canal Walk. It is confirmed that energy

rating and proficiency has not been assessed and the relevant reports should be obtained

when completed.

The Gross Internal floor space has a basic internal fit out, with wooden laminate flooring,

basic ceiling spot lights and plastered white washed walls and ceiling. The unit offers

additional services; one multi-purpose toilet, fitted from Roca Polo Range, a Small fully

fitted kitchen with subsequent white goods (Washing Machine, Dishwasher and electric

oven – appliances not tested)

Services

All mains services will be provided and metered. With Gas, Electricity and Water all

connected. Services confirmed by not tested. It is highlighted that the water is maintained

by a Grudfos Europump, again not tested.

Rating

Due to the premise not yet being completed, there is no confirmation or indication of rating

to add to the valuation report. Further investigation is required. The property falls under

the boundaries of Tower Hamlets Council.

Planning

Tower Hamlets planning register has be inspected for entries relating to the property. We

can confirm that planning consent was submitted on the 14th

of October 2008 and granted

on the 4th

of February 2009 under application PA/08/02207. We understand that no refusals

have affected the planning application

Planning granted is for the erection of the total buildings is to include two and nine storeys

to provide 34 dwellings (5 x studio, 10 x one bedroom, 13 x two bedroom, 5 x three

bedroom and 1 x five bedroom units) and 493 sq. m. of commercial floor-space has been

completed by Bellway Homes.



There is an attached 106 agreement with the building consent which should be obtained to

understand any requirement for any on-going obligations. This has not been investigated by

this report and has not been taken in to account in the Market Valuation

Title and Tenure

We have not seen office copies of the Title Plan and therefore the plans enclosed are for

illustrative purposes only and ought to be verified by the lender. It is recommended that a

full report on the Title is completed.

In reaching our conclusion of value we assumed that the subject property is available on a

long lease, indicated at being 250 years and to start at the time of completion, with vacant

possession and a ground rent of £500 p.a.

The terms of the lease covenants have not been confirmed but an assumption that the

landlord is obligated to undertake external and structural repairs is assumed. With the

responsibility of the leaseholder being to undertake and keep the internal of the property is

a ‘good and substantial condition’ For the purpose of this valuation it is also assumed that

the Tenant may assign a sub-lease of the whole of the premise with the freeholders

consents.

Valuation

The property is marketed at £600,000 for the long leasehold interest

The valuation is based on Market rents of £9-£11 per sq. ft. being used to value the

development, based on evidence from current market evidence and a current rental report

from CB Ellis.

Lower end values have been taken, due to the over-supply of commercial premises and new

build premises in E14, Units on 582 – 600 Commercial Road are currently on the market for

sale which offers large supply and will subsequently affect the current value. This value has

be agreed despite acknowledgement of it being a new build, fully fitted and available for

vacant possession. The area is under significant redevelopment at this, due to the pending

Olympic Games this may affect further values and the perspective of the purchase.



The valuation is as follows;

On the basis of the above, our opinion of the open market value of the long leasehold

interest in the property is £486,000 (Four hundred and Eighty Six Thousand Pounds Sterling)

this is considerably less than the property’s asking price with no allowance made for

purchasing costs.

In accordance with VS 6.1 Assuming normal lending terms of 5.2% with the requirement of

30% capital of the value reported the premises would be considered suitable as security for

mortgage-purposes.

Conditions

This report and valuations have been prepared on the basis that there has been disclosure

of all relevant information, except where special assumptions have been made, which may

affect the premises.

Our report and valuation is only for use of the party to whom it is addressed and no

responsibility is accepted to any third party for the whole of part of its contents.

As indicated as good practice by Appendix 5.11 please find attached to the report our terms

of engagement as agreed and referred to.

602 Commercial Road -Long Leasehold

Street Level 667 sq ft @ £9.61 £6,410

Canal Level 4639 sq ft @ £10.25 £44,550

Market Rent £53,960

Ground Rent £500

Net Profit Rent £53,560

Yp Perp @ 11% 9.091

Market Value £486,005



Yours Faithfully

The Valuer MRICS

For and on behalf of CEM Surveyors

Word Count 1319

Total Word Count 2856



Appendix

Ordnance Survey 1:100m



Conveyance Plan



Site Plan



‘MORTGAGE VALUATION

CONDITIONS OF ENGAGEMENT

A valuation for mortgage purposes is a limited inspection and report produced for Building Societies, Banks and other

Lenders to enable them to make a lending decision. The Firm reserves the right to make the mortgage information

available to other parties, lenders, or prospective borrowers. IT IS NOT A SURVEY. Unless otherwise stated the date of

valuation will be the date of inspection.

We confirm that our mortgage valuation is prepared in accordance with the R.I.C.S Valuation Standards, 7th Edition,

effective from 2nd May 2011, and, unless otherwise stated, we are External Valuers as defined therein. When required to

depart from these standards, or in expectation of a requirement to depart from these standards, in respect of a specific

action, this will be stated in the body of the report and must not be taken to imply departure from the standards in any

other respect. Further information may also be obtained from the Royal Institution of Chartered Surveyors

The report is used to guide the lender on the market value of the property for mortgage purposes, and is carried out for

this purpose alone. Although the inspection will be carried out by a valuer who will usually be a qualified surveyor it is not a

detailed inspection of the property, and only major visible defects will be noted. The surveyor will not inspect roof spaces,

under floor areas or other parts not readily accessible. The exterior and roof of the property will be inspected from groundlevel only from within the boundaries of the site and adjacent/communal public areas. The area of the property will be

taken into account, and the rooms individually inspected, but floor coverings and furniture will not be moved. Services

(such as water, gas, electricity and drainage) will not be tested and we will not advise as to whether these comply with

regulations in respect of these services.

The surveyor may recommend that a part of the mortgage be retained by the lenders until such time as particular repair

works are carried out. Similarly the report may suggest that the borrower should undertake to carry out certain repairs or

commission more extensive investigation where hidden defects are suspected since these may have a material effect on

the value of the property. If retention is recommended then the figure should not be regarded as an estimate of repair

costs. Its purpose is to protect the interests of the lending institution. It is recommended that detailed estimates be

obtained before proceeding with the purchase. Attention is drawn to the fact that if a subsequent transcription of this

report is prepared on a lender’s form, then in order to comply with the lender’s specific requirements, the wording,

phraseology or valuation may differ.

Many people rely on the Mortgage Valuation Certificate in the mistaken belief that it is a detailed survey. The report is

often made available to house buyers by lenders, but this does not mean that it should be relied upon as a report of the

condition of the building.

The definition of `market value' is the estimated amount for which a property should exchange on the date of valuation,

between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had

acted knowledgeably, prudently and without compulsion.

For the purposes of this market value we have assumed that vacant possession will be provided. Unless otherwise stated

we have valued the interest on a Comparable Basis.

The definition of market rental value (when reported) is the estimated amount for which a property, or space within a

property, should lease (let) on the date of valuation between a willing lessor or a willing lessee on appropriate lease terms

in an arm’s length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and withoutcompulsion. The valuation assumes that the let complies with Houses in Multiple Occupation legislation if appropriate.

The inspection that has been undertaken should not be regarded as a survey. We did not inspect parts of the property

which were covered, unexposed or inaccessible and are therefore unable to report that any such part of the property is

free from defect. Defects which are not considered materially to affect the value of the property or other matters which

would be attended to during maintenance, may not have been mentioned. If defects have been mentioned in this report,

they should be regarded as indicative and not exhaustive. Notwithstanding the above comment we would also recommend

a more detailed inspection and report. For the purposes of this valuation we have assumed that all uninspected areas are

free from defect which would have a material effect on value.

In accordance with our normal practice, we must state that this report is for the use only of the party to whom it is

addressed or their named client and no responsibility is accepted to any third party for the whole or any part of its content.

In addition, we would bring to your attention that neither the whole nor any part of this report, nor any reference thereto,

may be included in any document, circular or statement without prior written approval of the form and context in which it

will appear.



The Valuer shall, unless otherwise expressly agreed, rely upon information provided by the Client and/or the Client's legal

or other professional advisers relating to tenure, leases and all other relevant matters. For the purposes of this valuation

we have assumed that all ground burdens are nominal or have been redeemed and that there are no unusual outgoings or

onerous restrictions contained within the Titles of which we have no knowledge. We have further assumed that the

subjects are unaffected by any adverse planning proposals.

Unless otherwise stated, it is assumed that all the required valid planning permissions and statutory approvals for the

buildings and for their use, including any recent or significant extensions or alterations, have been obtained and complied

with. Works not requiring consent have been assumed to meet the standards required by the building regulations or are

exempt. It has been further assumed that no deleterious or hazardous materials or techniques have been used in the

construction of the subjects and that there is no contamination in or from the ground or from the immediate surrounds.

The valuer will not carry out an asbestos inspection and will not be acting as an asbestos inspector in completing a

valuation inspection of properties that may fall within the Control of Asbestos Regulations 2006. No enquiry of the duty

holder, as defined in the Control of Asbestos Regulations 2006, of the existence of an asbestos register, or of any plan for

the management of asbestos will be made. Your legal adviser/conveyancer should confirm the duty holder under these

regulations, the availability of an Asbestos Register and the existence and management of any asbestos containing

materials. For the purposes of this valuation, we have assumed that there is a duty holder, as defined in the Control of

Asbestos Regulations 2006, and that a Register of Asbestos and effective Management Plan is in place which does not

require any immediate expenditure or pose a significant risk to health or breach the HSE Regulations.

The valuer will not carry out an inspection for Japanese knotweed. Unless otherwise stated, for the purposes of the

valuation we have assumed that there is no Japanese knotweed within the boundaries of the property or in neighbouring

properties. The identification of Japanese knotweed should be made by a specialist contractor. It must be removed by

specialist contractors and removal may be expensive. Where the valuer does report the presence of Japanese knotweed

within the boundaries of the property, further investigations may be recommended

As part of our remit, we may, where we feel qualified and experienced to do so, provide general comment on standard

appropriate supplementary documentation, presented to us by the client’s lender and conveyancer. In the event of a

significant amount of documentation being provided to us, an additional fee may be incurred. Any additional fees will be

agreed.

The firm has a complaints procedure in accordance with Rule 7 of the 2007 Rules of conduct for firms of The Royal

Institution of Chartered Surveyors. A copy of this procedure is available on request.

In the event that this report is received before or at the same time as receipt of our Confirmation of Instructions we have

departed from the requirements of the RICS Valuation Standards to have previously confirmed in writing to you certain

information and our Conditions of Engagement.’ DMH Hall (2011)







Bibliography

Baum, A , Nunnington N, Mackmin D, (2009) The Income Approach to Property

Valuation, Fifth Edition, Estate Gazette

CEM (2010) Methods of Valuation

CEM (2010) Leasehold Interest

CEM (2010) Valuing for Investment

CEM (2009) Valuation for Loan Purposes

CEM (2007) Valuation on the basis of Profits

CEM (2003) Contractor’s and profit methods of valuation

CEM (2009) International Valuation Standards and the RICS Appraisals and Valuation

Standards

CEM (2008) Methods of Valuation

CEM (2011) Case Study 1 The Addams Family Portfolio

CEM (2011) Case Study 2 The Black Dog

CEM (2011) Case Study 5 The Riverside Retail Park, Midtown

Millington AF (2009) An Introduction to Property Valuation, Fifth Edition, Estate Gazette

Web Based Material

CB Richard Ellis (2010) Prime Rents and Yields

http://www.cbre.co.uk/uk_en/news_events/news_detail?p_id=4672 Last Accessed 17th

September 2011 2011

CB Richard Ellis (2009) Time to get down to the Real (Estate) Business www.cbre.co.uk

Last Accessed 18th

September 2011

Claridges (2011) Property Details www.claridges-commercial.co.uk Last Accessed 10th

September 2011

DMH Hall (2011) Terms of Engagement for Mortgage Valuation

www.apps.dmhall .co.uk/.../ MVR%20Conditions%20of%20Engagement .pdf Last

Accessed 17th

of September 2011



French, Nicky & Gaberilli, Laura (2010) Discounted Cash Flow

http://www.reading.ac.uk/REP/fulltxt/0505.pdf Last Accessed 17th of September 2011

Isurv (2011) Various http://www.isurv.com Last Accessed 18th

of September 2011

RICS (2010/11) Red Book Edition 6th & 7th www.isurv.com Last Accessed 18th of

September 2011

Tower Hamlets (2011) Online Planning

http://194.201.98.213/WAM/showCaseFile.do;jsessionid=B4E219CFA6244C6F52E08EE5

A72286B8?action=show&appType=Planning&appNumber=PA/08/2207 Last Accessed

18th of September 2011

Assignment 2 Completed

Documents